New generation of law firm sparks life into legal industry

“So law firms and the law partners who don’t reinvent themselves with new and better value propositions are highly susceptible to being commoditised.”

“The legal industry is going to get dramatically disrupted in Australia and most people aren’t aware of it yet,” says Andrew Mellett, the managing director of legal services provider Plexus.

“We can now do a property lease in about 45 per cent of the time it takes a traditional law firm and have a number of steps that demonstrate that we can do it for a high quality outcome. So in the end we deliver about a 70 per cent cost saving to our clients. That’s a pretty profound disruption.”

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Melbourne-based Plexus, an incorporated law firm founded and headed by non-lawyer Mellett, provides lawyer services to larger corporate clients on a project basis, to meet the needs of general counsel who are also trying to keep costs as low as possible. It also uses automated processes to create documents and a dedicated web-portal for clients to track matter progress and cost.

Disruption to the legal services industry in Australia isn’t as advanced as in jurisdictions such as the UK or US. The Co- op Group, which runs Britain’s fifth-biggest food retailer, last year took advantage of industry deregulation to branch into legal services. The Co-op, along with other UK household brands such as BT and the Automobile Association, offers fixed-price, off-the-shelf products including preparation of wills, pre-nuptial agreements and powers of attorney. UK trucking company Stobart Group gives customers access to barristers, with the company’s paralegal services taking charge of the documentation and other case preparation work. In March, US firm Rocket Lawyer, which started offering online documentation and legal advice in 2008, released an app permitting clients to draft documents or consult with lawyers.

Many firms are trying to work out how to cope in the face of the challenges brought about by a stressed economic environment and changing technology.

“The more fundamental question has to do with whether there is an inexorable movement in the rendering of legal services towards commoditisation of services and the answer to that is unequivocally yes,” K&L Gates chairman Peter Kalis told BRWduring a visit to Australia in March.

“So law firms and the law partners who don’t reinvent themselves with new and better value propositions are highly susceptible to being commoditised. And that’s reflected in pricing models and a variety of other ways, so the challenge of law firms, law partners and law firm management is to continue to reposition yourselves in a way that you present value propositions,” Kalis said.

Stand by for mass disruption In Australia, that awareness seems to be lacking.

“So law firms and the law partners who don’t reinvent themselves with new and better value propositions are highly susceptible to being commoditised ”

“The legal industry is going to get dramatically disrupted in Australia and most people aren’t aware of it yet,” says Andrew Mellett, the managing director of legal services provider Plexus.

“We can now do a property lease in about 45 per cent of the time it takes a traditional law firm and have a number of steps that demonstrate that we can do it for a high quality outcome. So in the end we deliver about a 70 per cent cost saving to our clients. That’s a pretty profound disruption.”

It may just be a case of time catching up with law and foisting upon it some of the changes that have – and continue to – wreak havoc in other industries.

“Legal services is possibly the last big industry that has not been disrupted by the advent of the internet,” says McKnight, a former lawyer with Freshfields Bruckhaus Deringer and Norton Rose.

They want lawyers and documents online

He started LegalVision in December. The company, which specialises in business contract documents such as web terms and conditions, privacy policies and software licences, started offering online advice with solicitors in April. McKnight says the company matches clients with an appropriately skilled solicitor – all of whom are sole practitioners who contract to work for LegalVision – within 24 hours. “We found we were getting a lot of customers who either weren’t comfortable just using our customised software,” McKnight says. “They wanted a lawyer to check it out, or wanted a document too specific, for example: the specialised terms and conditions for a cleaning company.”

Disruption in law isn’t just a matter of technology, however. BRW Fast Starter finalist People + Culture Strategies takes a fee-based retainer to consult on employment law and minimise the risks around litigation. Employsure takes that a step further by charging its mostly SME clients an annual fee, in exchange for which they can consult on issues of labour law and in turn have their legal costs – and liabilities – covered if they get sued.

Employsure, which started in Sydney in 2010, had 150 clients as of January last year. It now has more than 1000 and is growing at a rate of 150 new clients per month. In April last year UK services company Peninsula Group, which runs similar businesses in Mallett’s home country, took a majority stake in Employsure. For the undisclosed stake and ongoing investment it is paying $8 million, Mallett says.

Employsure employs 28 staff – typically law graduates who have worked for employer associations – who assess clients businesses and offer ongoing HR advice. If a client gets sued by an employee, the costs of the legal services provided by firm Sparke Helmore are covered by their monthly payment. Any liability or settlement costs they end up paying are underwritten by QBE.

Melbourne-based Plexus, an incorporated law firm founded and headed by non-lawyer Mellett, provides lawyer services to larger corporate clients on a project basis, to meet the needs of general counsel who are also trying to keep costs as low as possible. It also uses automated processes to create documents and a dedicated web-portal for clients to track matter progress and cost.

A great big mix

In the era of commodification, the provision of legal services is being combined with other types of work. Employsure intends to expand into occupational health and safety law.

“That remains a murky area in Australia with WorkCover and an area that damages businesses, especially small business,” Mallett says.

The company also wants, however, to offer businesses insurance against the cost of having to do an ATO audit as well as insurance against fines subsequently levied by the tax office. It also wants to offer a low-cost model of an employee assistance program – such as the anonymous counselling and advice lines companies provide to staff – to companies with as few as 10-15 staff.

There are limits however, on what off-the-shelf legal service providers can offer. LegalVision started with a focus on SMEs because they have a higher per-head spend, and their needs can be met with fewer resources, but McKnight wants to expand the company into contract services for consumers, with wills, family trust documents, deed of gift and promissory notes. The company wouldn’t expand into a service like litigation, however.

All the talk of low-end innovators raises a question: Why can’t established legal practices come up with the same inventions?

Curse of commoditisation

Business writer Clayton Christensen says successful companies focus on their premium position in the market and build businesses that come to depend on the high margins from the niche in which they specialise and make incremental improvements. This leaves them susceptible to challenges from new entrants.

“They . . . ignore the low end of the market, where disruptive innovations emerge from,” says Christensen, author of The Innovator’s Dilemma.

Dinosaurs don’t run fast

Changes are taking place, such as moves by solicitors toward chambers models that allow individuals to share premises and support services, or incorporated legal practices that allow lawyers to share income with non-lawyers. Some smaller and medium-sized firms are offering services for fixed fees. But so far, moves to embrace different business models are limited.

It is, to be sure, a cautious industry.

“The commoditisation of legal practice brings to bear situations for legal practitioners in which competing duties (such as the duty to the court, the administration of justice and the duty to the client) need to be considered and weighed against each other,” NSW Legal Services Commissioner Steve Mark says. “Commoditisation, it is said, can fuel not only profit but also greed.”

Legislation permitting law firms to function as multidisciplinary practices – in contrast to partnerships or incorporated firms that are limited in their operational scope – has existed in Australian states for more than a decade, yet the number remains small. Last year Victoria, for example, had just 10 multidisciplinary practices out of a state total of 7400 registered legal entities. NSW had about 20 such practices out of a total of 6000.

There are many reasons legal firms stick with their knitting – not the least of which is the expectations of clients who prefer to meet their solicitor face-to-face over a desk – but the economic interests of the lawyers themselves also play a role, Victorian Legal Services Commissioner Michael McGarvie says.

“It’s rewarding financially in many cases and therefore that fact alone may have discouraged lawyers from thinking they would expand to other regulated areas of similar complexity and with similar service and communications obligations that might be equally remunerative,” McGarvie says.

The industry will keep changing and newcomers will keep snapping at the heels of the established providers. For as long as there are clients needing services at weird hours – such as at 7am on Mother’s Day – there will be a business need to meet.

“We helped them get that chef into work that day and went through a disciplinary process with him after that,” Mallett says. “You’ve got a happy small business that would have otherwise been in real strife.”